Trump’s metal tariffs may provide a miner boost, but Minnesota industries see major problems ahead

It may have taken a year, but last week, Donald Trump did exactly what the mining and metals industries hoped he’d do as president: impose a sweeping and significant tariff on two industrial building blocks — steel and aluminum — coming into the U.S. from abroad.

As a candidate, Trump railed against countries like China and Mexico, who he alleged were trade cheaters and manipulators taking advantage of feeble U.S. officials and dumping cheap imports into the U.S., hurting domestic producers and leading to the loss of thousands of jobs. He vowed to take strong action to bring these industries, once engines of the U.S. economy that employed hundreds of thousands of workers, back to their former glory.

In the first year of his presidency, Trump was hemmed in by advisors who cautioned against such action. This year, however, has seen trade hawks ascendant in the president’s orbit, and Thursday’s announcement is the strongest targeted trade move yet to come out of this White House. The tariffs would consist of a 25 percent penalty on imported steel, and a 10 percent penalty on imported aluminum, but exact details will be finalized when the administration officially rolls out the tariffs in the coming weeks.

Trump’s tough declarations — “IF YOU DON’T HAVE STEEL, YOU DON’T HAVE A COUNTRY,” he tweeted on Thursday — were met with a rapturous reception from U.S. producers of steel and aluminum who claim the move will restore tens of thousands of jobs to those industries.

That might be the thought among Minnesota’s miners and their allies, who retain a vocal role in the state’s political life despite accounting for a shrinking share of Minnesota’s economic pie. But bigger employers in Minnesota, from the medical technology sector to the agriculture industry, are already outlining fears over the several ways Trump’s tariffs could backfire on them.

‘Steel D.R.E.’ — Dreaming of Reviving Extraction-based Industries

If Trump’s instinct on trade is protectionism, there were plenty of outlets to act on that gut feeling in the arena of global trade, with things like an obscure kind of Wisconsin dairy product coming under the president’s scrutiny in the past year.

Steel and aluminum, however, are among the highest-profile materials Trump could have penalized. The U.S. imported 30 million metric tons of steel in 2016, making it the world’s largest importer of the metal. It imported 6.3 million metric tons of aluminum in that year. According to the U.S. Department of Commerce, the top sources of imported steel were Canada, Brazil, South Korea, and Mexico, while the top suppliers of aluminum were Canada, Russia, and the United Arab Emirates. (Notably absent from the list is China. While China is a frequent target of anti-trade rhetoric, the U.S. imports relatively little steel from the country.)

Meanwhile, back at home, the U.S. mining and metals industries have declined as the country has undergone a broader shift, transitioning to a services-based economy over the past few decades as foreign nations began to supply steel at a cheaper rate. From the 1970s to 2014, employment in the U.S. steel industry — including iron mining — shrank by 50 percent. As of December 2017, roughly 85,000 Americans were employed in that sector, while 60,000 were employed in the aluminum sector, according to the federal Bureau of Labor Statistics.

In northeastern Minnesota, the iron mining tradition runs deep: the industry was the engine of the regional economy, and Minnesota taconite helped to keep steel mills humming around the industrial Midwest. Today, roughly 3,800 people are directly employed in iron mining in Minnesota, according to the Minnesota Department of Employment and Economic Development. Though mining is subject to booms and busts like other commodity-based industries, employment has gradually declined in the industry over time: in the late 1970s, as many as 14,000 Minnesotans worked the iron mines.

These statistics are frequently lamented by Trump and his team, who see declining employment in these sectors as evidence of bad American policy and leadership, not of macro-level economic and societal change. Recently, the culprit has been countries like China and Brazil, who are accused of dumping cheap steel and aluminum on the U.S. market, undercutting domestic product with their own subsidized exports, injuring the U.S. industry and leading to job loss.

It was in the name of countering dumping that the administration of Barack Obama imposed a 520 percent tariff on a particular kind of steel product, called cold-rolled steel, coming into the U.S. from China.

But the tariffs announced by Trump last week are sweeping, and will make all steel and aluminum coming into the U.S. 25 percent and 10 percent more expensive. The domestic industry is loving it, believing it will shift demand to domestic product and restore thousands of jobs to the sector.

Kelsey Johnson, president of the Minnesota Iron Mining Association, said Trump’s move would be a boon to the industry and to the Iron Range as a whole, though she added it is too early to say just how much of a boon it will be.

“We’re excited about Trump potentially going in this direction because it’ll help us have a better foothold and a level playing field,” she said, saying the tariff would counter the countries that have been undercutting the U.S. industry.

Eighth District DFL Rep. Rick Nolan represents the heart of Minnesota’s mining country, and has been a vocal cheerleader for strong action to protect the domestic steel industry. He has repeatedly applauded the administration’s announcement, saying in a statement on Thursday that “there is no better way to create and protect good-paying American jobs” than to impose high tariffs.

“I’ve seen how good other countries are at protecting their vital economic interests,” Nolan told MinnPost. “We’ve allowed ourselves to become a dumping ground for everybody. The Canadians and Europeans, they’re very protective of their best economic interests. When they start screaming and crying wolf it’s like, oh, go away.”

Direct costs

While the steel and aluminum industry and its allies rejoiced over the news, those in other sectors of the economy found a hard time seeing any silver linings in Trump’s move. Protectionist actions often set off chain reactions in the broader economy, and the aftershocks from this one could prove particularly damaging and complicated.

Concern over the tariff came primarily from two groups of interests: those who would be hurt directly by having to pay more for the steel and aluminum they buy to make things, and those who could be hurt by any broader destabilization in global trade brought on by this move, like counter-tariffs imposed by other countries on U.S. products.

Minnesota has plenty of representation in both of those categories: the state is home to a high-tech manufacturing sector, which has thrived, in part, thanks to the availability of cheaper steel and aluminum.

Minnesota’s medical technology industry, one of the strongest in the nation, could be particularly impacted. The state is home to a range of medical technology companies, from device giant Medtronic to dozens of smaller start-up companies, which employ around 16,000 people. Most of these firms manufacture some kind of product, whether it is a hearing aid or artificial heart — and stainless steel is a common material in many of these items.

Minnesota Public Radio reported that the medical device industry is already concerned about the possible impacts of Trump’s tariffs. The vice president of Medical Alley Association, a trade association for the industry, said if the price of steel increases, it would increase the price of everything from high-tech devices to simple hospital equipment.

Trade war fallout

The possibility of Trump’s tariff prompting other countries to slap counter-tariffs on U.S. goods, sparking a “trade war,” is what’s fueling concern in the broader Minnesota economy. Though Trump insisted on Twitter that trade wars are “easy to win,” few people seem to be itching for one.

Agriculture, a key component of the Minnesota economy, is deeply dependent on free-flowing global trade. But agricultural products are often among the first to get hit with penalties when two countries are engaged in a trade feud, and the industry is concerned that countries affected by the steel tariff will promptly target their products.

Minnesota is the fourth-biggest exporter of agricultural products in the U.S., and its staples — pork, corn, soybeans — primarily flow to the countries who will be angriest at the steel tariff: Mexico, Canada, South Korea, among others. (Canada and South Korea, together, account for 25 percent of U.S. steel imports, and 18 percent of Minnesota agricultural exports.)

Gary Wertish, president of the Minnesota Farmers’ Union, said in a statement to MinnPost that his group’s main concern is “disruption to our markets due to trade wars and potential barriers to our exports.”

Wertish also expressed concern that the sudden move from the administration could inject bad blood into ongoing talks with Canada and Mexico to rework the North American Free Trade Agreement, the success of which is hugely important to the ag industry. “We are also concerned that the approach being taken may damage our relationships with other countries, rather than working with them to fix problems that may exist in various industries,” he said.

Ironically, it’s possible that a trade war could end up hurting the Minnesota mining industry. Exports of Minnesota iron ore have increased in recent years; fully one-third of Minnesota taconite is exported, with the largest share going to Canada.

According to Robert Kudrle, a professor who studies global trade at the University of Minnesota, that means means “any trade war that might develop would jeopardize that industry as well.”

The Minnesota Iron Mining Association’s Johnson did not express concern over a counter-tariff on taconite, and said the administration could move to exempt certain countries from the penalty. (The White House has suggested Mexico and Canada could be exempted — if NAFTA talks go well.)

Johnson maintained, however, “any kind of tariff would be a benefit, even if it’s an across-the-board tariff.”

Who pays?

Those supportive of Trump’s move downplayed concerns that it could lead to adverse impacts on other industries, or any broader trade conflict.

But Nolan maintained that free trade, and the low commodity prices that have resulted, have sparked a “race to the bottom” that have harmed economic and environmental standards globally. U.S. industries might offer a more expensive product, the argument goes, but they uphold worthwhile standards that don’t come cheap.

“Manufacturers here in America are going to have to comply with standards that require environmental protection, living wages, and community health and safety,” Nolan said.

Others do not share Nolan’s view, and believe Trump’s move is broad enough to disrupt the economy and create real winners and losers in Minnesota.

Kudrle says that Minnesota is an advanced economy that depends on trade more so than other states do. “We have advanced agriculture, advanced high-tech, very sophisticated consumer durables like RVs,” he told MinnPost. “We’re the part of America that really gains the most from international trade. Minnesota is a big loser when trade loses.”

Third District GOP Rep. Erik Paulsen, a vocal advocate for free trade in Congress, criticized the administration’s move in an interview with MinnPost. “I’ve spoken to small businesses in Minnesota who rely on supplies of aluminum, who have already seen price increases when there’s nervousness in the market about global tariffs,” he said. “That, in turn, trickles down, and it could result in lost jobs, higher prices, by and large, negative effects.”

That is the main point many are making in response to the White House’s move: that the tariff will ultimately be a tax on U.S. consumers, who could end up being the biggest losers in all this.

Kudrle cautioned that he doesn’t think the Trump move will substantially increase the price of any one consumer good. “The whole problem with protectionism is it’s spread out like a thin layer over a huge amount of stuff,” he explained. “That it doesn’t increase the cost of anything very much doesn’t mean it doesn’t increase costs substantially.”

Comments (16)

But this might be the dumbest thing that Trump has ever done. He has no idea how any of this works. He lives with (and promotes) this fantasy that he is a great negotiator, when the reality is that he is a terrible one.

This latest (weekly) installment of the White House Reality Show is just one more half-ton of straw on the pile of proof that the president is either as "mentally ill" as most speculate, clearly working for Russia (and the larger, global "Authoritarians 'R Us" movement) or both and needs to be removed from office as soon as possible.

I'm no scholar on the subject, but a nation (or planet) caught up in economic chaos or, better yet, war or the closest thing possible, seems to be part of the "Taking Control: 101" curriculum.

Whether he's doing it because he's deranged and can't help it, or doing it as part of some "diabolical plan," everything he's doing (including this demonstration of economic idiocy) appears to be geared to push the country over whatever edge he can push it over while he has the opportunity because, "Only I can fix it."

While I have some problems with the free trade pacts...now that they're in existence...trumps behavior with tariffs are going to cause serious problems for us. There was a better way, but stumbling bumbling trump and this repub party seem incapable of anything "better way" for the people.
Ryan said he disagrees with them...but watch...he talks...but does nothing.

An important theme that persists throughout the work is the idea that the economic system is automatic, and, when left with substantial freedom, able to regulate itself. This is often referred to as the "invisible hand." The ability to self-regulate and to ensure maximum efficiency, however, is limited by externalities, monopolies, tax preferences, lobbying groups, and other "privileges" extended to certain members of the economy at the expense of others
Did you get the 2nd part?

Agriculture is a commodity business. Other countries have many other countries from which they can buy food products. Slapping on a tariff isn't ever necessary, as the foreign consumer can easily avoid buying our food. This is no different from few students coming to attend big US schools or travel to the US, as Trump has put out the not welcome sign. Trump was too lazy to identify real price rigging, but clearly for political reasons rejecting the advice of his own party. As always, he is pushing the Trump brand and cult of personality at the expense of hard working Americans.

It used to be dems who railed against unfair trade practices and tried to protect american workers, especially those outside of urban areas, no more.it used to be Repubs who were free traders and didnt care how it harmed our standard of living and how many manufacturing jobs were lost. We are in a global economy blah blah.. Enter the President and most flip sides, there are a few In each party staying consistant, but not many.

The last time our Country had a trade surplus was in 1975...let that sink in. We have lost badly in manufacturing and the middle class has paid the price. Start a trade war? Ridiculous! EU and China, Korea, Mexico and others declared war on us a long time ago and we never fought back and paid a steep price. EU slaps a 25% VAT on our exports..with friends like that... you know the rest.

Perhaps a more targeted and restrictive policy would be better, go after China first. We shall see whether this is just more of the same hysteria we are quite used to now.

The Democrats, by and large, came to understand the global economy and came around to supporting free trade under Clinton and Obama.

What Trump is doing really trancends left-right trade debates, and it just pure stupidity. The man has no understanding whatsoever about how trade (or really any policy) works, which is why even his Republicans are turning on him. Trump is just killing jobs.

You know over the last 30+ years of doing business analysis we used spreadsheets to help us understand manufacturing costs, selling prices, market points, market share, product configurations, country configurations, fixed and variable costs, selling costs, etc. etc. etc. Strongly suspect that the smart folks are already running their numbers. Seems guys like "T" can do all this W/O picking up a calculator, he can tell you what the market and business changes, in a global market, will be to a gross margin calculation, across 120 different business segments/markets and an equal number of various product configurations that use 10% of an imported specialty stainless steel! For all the Adam Smith experts, curious have you ever read it, or are you like "T" just pass your hand over the cover and all that knowledge passed into your cranium? Are you also familiar with "The Theory of Moral Sentiments" published before Wealth of Nations, you do know the 2 books are linked? It is a complicated, complex intertwined world out here, making grandiose global implication sweeping changes based on bravado, is nothing more than gambling, and following it up with wild-ass projections, conjecture and idiotic conclusions, only supports the case of a country being run to ruin!

What is the difference between Trump putting a 25% tariff on steel and Obama putting a tax on imported Chinese solar panels in 2011? After Obama administration put a tariff on Chinese solar panels coming into America, China upped their tariffs on American autos going into China. The Obama administration went to World Trade Organization and claimed China was in violation of a trade agreement with the additional auto tariffs. I did not see liberals screaming bloody murder over a tariff on solar panels as they are on steel tariffs.

I’m all for individual tariffs to level playing field for USA workers. I don’t believe in the these big globalist multinational trade agreements. If the Chinese are going to tariff tax American products going in, we should tax certain products of theirs coming in. It’s called a negotiation. Having had American apologists doing unilateral, way too big trade agreements for decades have not helped the American worker, manufacturing, mining and in general the middle class. I believe in a few months this steel/aluminum tariff will be directed at 2-3 countries and a better fair trade (not free trade) deal will be struck for the USA.
Again, as I stated, the liberals were fine with Obama taxing solar panels but in total meltdown mode with Trump taxing steel. As a matter of fact the MSM hardly reported on the solar panel tariff.

Its ok to use tarrifs if you know what you are doing. The problem (and the outcry from across the board politically) is because Trump doesn’t understand trade and is an incompetent negotiator. You don’t want a guy who has a long history of one failed business after another messing with the economy. The Chinese (and everyone else) will eat Trump’s lunch.

Wild --- Assumption? Reading some comments, folks claim, the tariffs are needed to level the playing field, curious, how many have the expertise and financial documentation to support that "assumption"? Personally I haven't seen 1 set of numbers in the news to support, "those guys are cheating", Why are we not level now, is it certain areas, all areas. some countries, all countries, and what does level look like? Just another case from this perspective on folks jumping to conclusions and making W/A assumptions. Some folks don't believe in global trade, well OK, you don't have to believe that the world is round either, but despite an earth is flat belief, the world is still round, and we have global trade. The world is in motion, it isn't turning back the clock and it is going on with or with out us, remember the US represents < 5% of the global population.
Another point, all aluminum and steel are not the same, look at gauge, finish, strength, bar, flat, sheet, roll, special, etc. There are probably mills that have specialized on a particular process etc,(competitive advantage). Personally, the hoopla is making a big deal that will go nowhere and accomplish nothing but the greater aggrandizement of "T", throw some bread crumbs to the voters, what do you think, a new steel mill takes to plan, design, build, 3-4-6 years?